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November 11, 2002

At Long Last: U.S. Trading in Single-stock Futures

NEW YORK (HedgeWorld.com)--The two exchanges that will light the candle on single-stock futures on Friday are preparing ceremonies for the occasion.

At the Nasdaq-Liffe Market, its chief executive, Tom Ascher, along with the chief executive of Euronext.liffe, Hugh Freedberg, and the executive vice president of Nasdaq, William R. Harts, will hold a ceremony marking the occasion at the Nasdaq MarketSite broadcast studio just moments before the opening.

The initial listing will include futures on the following stocks: Chevron Texaco, Exxon Mobil, Ford Motor, General Electric, General Motors, Honeywell International, IBM, Intel, Microsoft, and Oracle. "These companies represent the innovation, determination and leadership that embody American capitalism at its finest," said Mr. Ascher in a statement on Wednesday. "We look forward to developing NQLX to a point where it enhances the efficiency of the U.S. capital markets."

The NQLX will also list futures on four exchange-traded funds: the Russell 1000 iShares, Russell 2000 iShares, Russell 3000 iShares, and the Nasdaq-100 Index tracking stock.

How Much Volume

Officials of both exchanges decline to estimate first-day volume. They say they're in for the long haul, and first-day numbers can't signify either success or failure.

Patrick Lafferty, a commodity trading adviser at the Chicago Board of Trade and editor of an industry newsletter, TradeView, said that he did not expect a flood of orders in either New York or Chicago Friday. He expects demand will build gradually, as traders and institutions become accustomed to the new systems. There may well be a significant pick-up in volume by the new year, he suggested.

There hasn't been a tremendous demand overseas where these products have traded for years, he said. Individual equity futures have attained their greatest success in Spain, due to a quirk in that country's securities laws, which cap the equity stake that asset managers can have in a listed companies, creating a demand for delta-neutral equity derivatives whenever managers want to invest beyond the cap. But the United States is not comparable to the overseas markets, Mr. Lafferty believes. The same products have a much greater potential here.

Some skeptics have said that there is no real need for single-stock futures, because anything that one would want a future to do, whether by way of a directional bet or a hedge, a suitably tailored option can already do. One of these skeptics is Rudolf Ferscha, chief executive of Eurex.

Other OneChicago News

Separately, OneChicago announced that it had signed a license agreement with Dow Jones & Co., Inc. enabling OneChicago to offer futures contracts on the DIAMONDS exchange-traded fund. It does not plan to offer DIA at the time of the launch Nov. 8, though, and it awaits regulatory approval.

"The DIAMONDS will be a complementary product to our broad menu of security futures contracts as well as an important hedging tool for the fast growing DIAMONDS options and DJIA futures contracts listed at the Chicago Board Options Exchange and the Chicago Board of Trade, two of our joint venture partners," said Mr. Rainer.